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Asia AM Digest: US Dollar Gains as Yield Curve Flattens Further

Asia AM Digest: US Dollar Gains as Yield Curve Flattens Further

Research, Research Team

Get the Asia AM Digest every day before Tokyo equity markets opensign up here !

The Canadian Dollar plunged against its top counterparts yesterday following a dovish BOC monetary policy announcement. The Australian Dollar tracked lower as well, stung by disappointing third-quarter GDP data. The perennially anti-risk JapaneseYen rose, buoyed by a selloff in on its local stock exchanges.

The US Dollar continued rise as the front-end of the Treasury bond yield curve flattened. Indeed, the greenback’s gains tracked inversely of the spread between 5- and 2-year yields. This may imply that support is coming from the markets bringing the timing of Fed interest rate hike expectations forward.

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IG Client Sentiment Index Chart of the Day: GBP/USD

CLICK HERE to learn more about the IG Client Sentiment Index

Retail trader data shows 46.4% of traders are net-long GBP/USD, with the ratio of traders short to long at 1.16 to 1. In fact, traders have remained net-short since Nov 21 when GBP/USD traded near 1.32465; price has moved 0.9% higher since then. The percentage of traders net-long is now its highest since Nov 22 when GBP/USD traded near 1.3314. The number of traders net-long is 23.9% higher than yesterday and 9.4% higher from last week, while the number of traders net-short is 9.7% lower than yesterday and 1.4% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBP/USD price trend may soon reverse lower despite the fact traders remain net-short.

Five Things Traders are Reading

  1. GBP/JPY Technical Analysis: Double-Bottom, Meet Double-Top by James Stanley, Currency Strategist
  2. EUR/USD Rebound Unravels- Fed & ECB Meetings in Focus by David Song, Currency Analyst
  3. US Assets Taking Divergent Paths: Stocks Look Healthy, the Dollar Doesn’t by Christopher Vecchio, CFA, Sr. Currency Strategist
  4. EUR/JPY Technical Analysis: Prices Plummet to Support as the Range Remains by James Stanley, Currency Strategist
  5. USD/CAD Turns Higher after BOC Urges Patience on Rate Rises by Christopher Vecchio, CFA, Sr. Currency Strategist

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.